Afrimat, once a darling of retail and institutional investors, has seen its share price plummet from a peak of R73 in mid-2024 to around R31.50, with a 52-week low of R25.20 in August. The company's reputation for diversified earnings did not prevent a headline loss per share of -55 to -60 cents for the six months ended August 2026. This significant drop comes after interim headline earnings per share (Heps) had consistently been positive, ranging from 252.2 cents to 295.1 cents from 1H'22 to 1H'24.
The company's troubles began to show in the previous financial year, with full-year Heps of 95.8 cents and a loss of 6.1 cents per share in the second half. The losses accelerated in the first half of the current financial year, primarily due to issues at the Nkomati Anthracite Mine and weak volumes in the iron ore business. The trading statement points to the iron ore market, both export and domestic, as a major contributor to the losses. A stronger rand and higher shipping costs significantly impacted the export market.
The domestic iron ore market did not provide a buffer, with domestic iron ore volumes declining by 36.5% due to difficulties at ArcelorMittal. Additionally, anthracite suffered in the domestic market, affected by problems in the ferrochrome smelting industry. These challenges had a severe impact on Afrimat's profitability, with total Heps from H1'25 to H1'27 estimated to be only 97.4 cents, a significant drop from 810.7 cents in total from H1'22 to H1'24.
The lesson from Afrimat's experience is that while revenue may be diversified, the impact of operating leverage in the business model means that trouble in one or two operations can quickly affect group profitability. However, there are some positive signs, including a strong performance by the aggregates and fly ash operations, supported by the acquisition of Lafarge quarries. The aggregates segment is the largest contributor to group revenue and has been a source of profitability and expanding operating margins.
The trading statement suggests that the first quarter was worse than the second, which may have contributed to the share price recovery from the August lows. Investors are watching Afrimat closely, with some, like The Finance Ghost, taking a cautious approach and waiting for the release of detailed results on 22 October to understand the reasons behind the accelerated losses.
Afrimat's business has changed significantly over the past 20 years, mainly through acquisitive activity to broaden the earnings profile of the group. The Lafarge acquisition, while a contributor to the dip in earnings in 1H'25, is not the primary driver of the current losses. The company's diversified revenue streams have not shielded investors from the impact of operating leverage.
The impact of the pressure in iron ore and anthracite has been severe, with the company's earnings on a three-year basis showing a significant decline. Despite the challenges, there are green shoots in the trading statement, including the possibility that the cement section incurred operating losses during the early part of the period but was profitable later on.
Key points
- Afrimat's diversified revenue streams failed to shield investors from losses as a stronger rand, higher shipping costs, and declining domestic iron ore volumes took a toll on the company's profitability.
- The company's operating leverage means that trouble in one or two operations can quickly affect group profitability.
- Despite challenges, Afrimat's aggregates and fly ash operations showed a strong performance, supported by the acquisition of Lafarge quarries.
